ETF Trends
ETF Trends

The S&P 500 Index and SPDR S&P 500 ETF (NYSEArca: SPY), the world’s largest exchange traded fund, are each up more than 3% over the past month. That has the benchmark U.S. equity index bumping up against some long-term technical resistance.

While markets have done the best in the fourth quarter in all years since 1945, history shows than an advance in excess of 7%, which has only happened five times since World War II, typically resulted in a gain of just 1.9% over November and December of the year, with the S&P 500 rising three of five times.

“The S&P 500 remains inside of a 5-year rising channel, shaded in green. The S&P back in August hit dual channel support at, which held,” said Chris Kimble of Kimble Charting Solutions. “Earlier this year, the S&P hit the top of channel, which held as resistance for months. The 10% decline in late summer, saw investor sentiment hit levels last seen at the 2011 lows. Of late sentiment indicators hitting optimistic levels has started to increase again, after the strong rally in October.”

Since 1945, the S&P 500 rose in price 77% of the time during the final two months of the year, with an average price gain of 3.0%. Each minimum increase in the price advance over October diminished the average price gain and frequency of advance for the rest of the year. In contrast, the best rest of the year returns typically occurred after an October decline, which occurred 27 times with an average price increase during the rest of the year of 3.4%. Consequently, investors who are looking for a Santa Claus rally may be wishing for the markets to tank over the next couple of sessions before the month ends.

“The 10% decline in late summer, saw investor sentiment hit levels last seen at the 2011 lows. Of late sentiment indicators hitting optimistic levels has started to increase again, after the strong rally in October,” adds Kimble. “The S&P is just a couple of percent away from the top of its 20-year rising channel. How it handles this channel at, should go a long way to telling us where the broad market will be six months from now.”

Investors looking for other broad market ETF ideas can consider the Vanguard Total Stock Market ETF (NYSEArca: VTI), with a 0.05% expense ratio, and the Schwab U.S. Broad Market ETF (NYSEArca: SCHB), with a 0.04% expense ratio, are among the cheapest U.S.-listed ETFs that provide exposure to nearly the entire U.S. stock market. [Build a Dirt-Cheap Portfolio With These ETFs]

S&P 500

Chart Courtesy: Kimble Charting Solutions

Tom Lydon’s clients own shares of SPY.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.